In order to increace profits and reduce customer churn, organisations must have a truly differentiated offering that customers cannot acquire elsewhere. Providing such an offering necessitates having to focus on being better than the competition. This ultimately means that companies must make trade-offs - not only regarding what they will offer in terms of products and services, but also which customers they will serve.
With the competitive nature of today’s markets, many organisations are adopting a customer centric approach as a means of gaining competitive advantage. However, simply satisfying customers is no longer sufficient to improving business performance. Today, all customers expect to be satisfied!
The key to maximising business performance is by creating customer loyalty. Customers are very demanding and expect that:
- Products and services perform their intended functions
- They receive the after sales service and support when required
- Their overall customer experience is easy, convenient and trouble free
For most organisations, being customer centric means satisfying customers' requirements in key areas such as products, service, customer management and the overall customer experience. The rationale is that by doing so, customers will be satisfied with their supplier. This will result in the supplier experiencing repeat purchases, increased customer spend and ultimately improved bottom line results.
By focusing only on customer satisfaction, organisations are simply eliminating sources of dissatisfaction. However, this will not necessarily reduce customers taking their business elsewhere - commonly referred to as customer churn. In fact, many satisfied customers will defect to other providers. According to Bloomberg Business Week, 60% of defecting customers describe themselves as "very satisfied" before they leave.
Preventing customer churn is particularly important in business to business (B2B) markets. In these markets, organisations' products and services are sold to other businesses either for their own use, to incorporate into products or services they produce or for resale to other organisations or end users (consumers). Organisations in these markets typically have a small number of customers that account for a very large portion of their revenues. Therefore, it is an even greater imperative that B2B organisations need to take a proactive, strategic approach to defend their customer base and grow their business.
The key to success: Delivering value and building customer loyalty
The key to maximising business performance is through creating customer loyalty. By customer loyalty we mean instilling an attitude in customers leading them to repurchase, increase spend as well as be an advocate on the supplier's behalf. This goes beyond merely satisfying customers. It is achieved by created differentiated experiences and offerings that customers prefer and value.
Customers derive value when their providers help them to:
Achieve desired outcomes (Selling more products and services to their end users)
Perform activities or "jobs" they are trying to accomplish in an improved manner (Ordering / delivery of products faster and cheaper)
Whose needs to focus on?
However, organisations should not strive to meet the needs of ALL customers. There are some customers for which an organisation is not best suited to serve as they either have requirements for which the organisation cannot satisfy or would be too costly and unprofitable to do so.
Therefore to maximise business performance, organisations must focus on and create loyalty for those customers that are most profitable to them. This necessitates that companies adopt a strategic approach in which they:
Understand what customers value
Know what areas of value to focus their efforts and for which customers
Develop and implement specific actions to provide the value desired
Segmentation: The way to profitably meet customer needs
A highly effective way to identify customers whose needs you should meet is achieved through the use of needs based segmentation. Needs based segmentation is a technique that identifies groups of customers with common needs referred to as customer segments. Members of a segment have similar needs to one another but these needs are different to those of other segments. Segmentation enables companies to profitably meet customer needs by identifying and matching those needs with the organisation's objectives and capabilities.
The benefits of using this approach are that they enable organisations to:
- Uncover needs beyond what customers state outright in customer feedback
- Identify gaps in the market that are not served or are underserved and highlight areas for new product development
- Provide exact solutions that specifically cater to segment needs that are not easily copied by the competition creating both customer loyalty and reduced levels of customer churn
Segmentation is a scientific and robust process comprised of four steps:
Determine customer needs and value drivers
Create needs based customer segments
Define observable segment characteristics (eg type of companies, size, offerings)
Assess the segment opportunity and attractiveness
It is this last step that is particularly important in ensuring that segmentation leads to a profitable outcome for your organisation. In this critical step, companies must not only assess which segment needs they will meet, but also the profitability of doing so. After completing this analysis, organisations must then make a conscious decision as to which customer segments they WILL serve, as well as those segments they will NOT serve.
Management often has difficulty making a conscious decision to deliberately NOT do business with certain customers for fear of "leaving money on the table". It is this reluctance that often results in companies catering to customers that are unprofitable and thereby hindering the company's bottom line results.
Keys to success
In addition to undertaking a strategic approach to responding to customer needs, to help ensure that your organisation maximises it bottom line performance, a number of factors must also be satisfied.
Senior Management buy-in and championing
Any attempts to understand and respond to customer needs will likely not succeed if such efforts are not endorsed and championed by your senior management team. They must also recognise that this is not a one-off project but a new way of doing business. Their buy-in is critical if you hope to have the dedication and participation of the other business units that are needed to deliver customer value.
Cross function endorsement and participation
Business departments such as sales, operations, marketing and customer service will need to be involved in creating and delivering the product and service offerings that your customers require. To gain their buy-in and participation, they must understand:
Why the company is taking this approach
What it means for their respective departments and roles
Have a strong understanding of customer needs and value drivers
Improvements in the company's performance will only be achieved if it responds to the customer insights obtained and delivers the specific product and service offerings and experiences customers seek. Companies must also be sure to communicate both the availability and benefits of these offerings to their customers.
Continuous feedback and improvement
Improved business performance will only be sustained if companies are aware of and respond to customers changing needs. Therefore customer dialogue mechanisms and processes must be established with the organisation which will enable it to regularly gather, analyse and respond to customer needs.